Download AC ALTERNATIVES® Equity Market Neutral

Q2 2017
Quarterly Commentary
®
AC ALTERNATIVES® Equity Market Neutral
TICKERS Inv Class: ALHIX > I: ALISX > A Class: ALIAX > C Class: ALICX > R5 Class: ALIGX > R Class: ALIRX
AC Alternatives Equity Market Neutral declined in the quarter ended June 30, 2017,
trailing its benchmark, the Bloomberg Barclays U.S. 1-3 Month Treasury Bill Index.
New Records for Equity Markets
Upbeat earnings reports drove most U.S. equity indices higher for the quarter, as
corporate earnings for S&P 5001 companies rose nearly 14% in the first quarter. The
health care sector was a leading driver of large-cap stock performance. Health care
stocks advanced on positive earnings performance and the potential passage of a new
health care bill. Industrials stocks rallied in part due to increased confidence in the
global economic outlook. Financials stocks also advanced on news that major U.S. banks
to shareholders. The telecommunication services and energy sectors suffered declines
during the quarter. Telecommunication services stocks were pressured by lackluster
profit performance and increased competition around pricing, while energy stocks sold
off after oil prices retreated to below $50 per barrel.
The portfolio is managed to produce capital appreciation independent of equity market
conditions, so its benchmark is a cash-equivalent asset the three-month U.S. Treasury
-selection process incorporates factors of valuation, quality,
growth, and sentiment while striving to minimize unintended risks along industries and
results in the period, while growth and sentiment factors contributed to returns.
Information Technology and Consumer Staples Detracted
software companies and short positions among information technology services names.
The consumer staples sector was also a detractor, with underperformance in the food
products, household products, and beverages industries, though no single investment
was a key detractor in the sector. Investments in the industrials sector weighed on
performance, led by a decline in a long position in Chicago Bridge & Iron. The
engineering firm announced disappointing earnings and lowered fiscal year guidance,
affected by ongoing weakness in the energy markets that it serves. We exited the
position.
Health Care and Real Estate Contributed to Performance
Investments in the health care sector boosted performance. A number of positions in the
health care equipment and supplies industry drove returns. Medical device maker
LivaNova reported better-than-expected earnings in the quarter due to successful cost
control measures and raised earnings guidance for the rest of the year. The stock
maintains high scores across all four factors. CR Bard, also a medical device maker,
rallied on news that it would be acquired by industry giant Becton, Dickinson & Company.
Elsewhere in the portfolio, net short positions in the real estate and telecommunication
services sectors also contributed to performance.
Positioning for the Future
We employ a structured, disciplined investment approach for both stock selection and
portfolio construction. The portfolio is managed to be market neutral, with approximately
equal dollar amounts invested in its long and short positions. We incorporate measures
of valuation, quality, growth, and sentiment into our stock-selection process, with the
aim of producing consistent, longleading net long positions are in materials, industrials, and health care. The largest net
shorts are in energy, utilities, and real estate.
1©2017
® Index is composed of 500 selected
common stocks most of which are listed on the New York Stock Exchange. It is not an investment
product available for purchase.
OBJECTIVE
Long-term capital growth independent of
equity market conditions.
PORTFOLIO MANAGEMENT TEAM
Start Date
Industry
Company
Brian Garbe
1988
2010
Claudia Musat
2005
2005
TOP 10 EQUITY HOLDINGS (%)
Boyd Gaming Corp
0.75
Realogy Holdings Corp
0.74
Owens Corning
0.73
LivaNova PLC
0.73
Eastman Chemical Co
0.72
Carlisle Cos Inc
0.71
Brunswick Corp/DE
0.71
Air Products & Chemicals Inc
0.70
Ciena Corp
0.68
Applied Materials Inc
0.67
As of 5/31/2017
The holdings listed should not be considered recommendations to
purchase or sell a particular security. Equity holdings are grouped to
include common shares, depository receipts, rights and warrants issued by
the same company. Fund holdings subject to change.
AC Alternatives® Equity Market Neutral
Data presented reflects past performance. Past performance is no guarantee of future results. Current performance may be
higher or lower than the performance shown. To obtain performance data current to the most recent month end, please visit
americancentury.com. Investment return and share value will fluctuate, and redemption value may be more or less than original
cost. Data assumes reinvestment of dividends and capital gains. For information about other share classes available, please consult
the prospectus. There is no guarantee that the investment objectives will be met. Dividends and yields represent past performance and
there is no guarantee that they will continue to be paid.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDED 6/30/2017 (%)
Class
Qtr (%)
1 Year (%)
3 Year (%)
5 Year (%)
10 Year (%)
Since Inception (%)
Inception Date
Investor
-0.80
0.91
-0.39
1.06
0.11
1.14
9/30/05
I
-0.79
1.07
-0.20
1.26
0.30
1.34
9/30/05
R51
-0.79
1.07
-0.20
1.26
0.30
-1.13
4/10/17
Bloomberg Barclays U.S. 1-3 Month
Treasury Bill Index
0.20
0.44
0.20
0.14
0.50
-
-
1
Historical performance for the R5 Class prior to its inception is based on the performance of I Class shares, which have the same expenses as the R5 Class.
Performance less than one year, when quoted, is not annualized.
EXPENSES & SALES CHARGES (%)
Gross Expense Ratio
Investor
I
R5
2.93
2.73
2.73
The total expense ratio (excluding dividends and interest expense on securities sold short) was 1.38% for Investor Class and 1.18% for I and R5 Classes. This fund's total expense ratio excludes dividends on short sales. These are
the dividends paid to the lenders of the borrowed securities. The expense relating to dividends on short sales will vary depending on whether the securities the fund sells short pay dividends and on the size of any such dividends.
s for a given time period. It is gross of any fee waivers or expense reimbursement.
Expense ratio is as of the fund's current prospectus.
The I Class minimum investment amount is $5 million ($3 million for endowments and foundations) per fund.
You should consider the
investment objectives, risks, and charges and expenses carefully before you invest. The
prospectus or
summary prospectus, which can be obtained at americancentury.com, contains this and other information about the fund, and should be
read carefully before investing.
The opinions expressed are those of the portfolio investment team and are no guarantee of the future performance of any American
Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been
received in connection with such views. This information is for an educational purpose only and is not intended to serve as investment
advice.
The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment,
accounting, legal or tax advice.
Alternative mutual funds often hold a variety of non-traditional investments, and also often employ more complex trading strategies
than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making
them more suitable for investors with an above average tolerance for risk.
Fund shown may take short positions. A short position arises when the fund sells stock that it does not own but was borrowed in
anticipation that the market price of the stock will decline. If the market price declines, the fund can replace the borrowed stock at a
lower price and capture the value represented by the difference between the higher sale price and the lower replacement price.
Conversely, if the price of the stock goes up after the fund borrows the stock, the fund will lose money because it will have to pay more
to replace the borrowed stock than it received when it sold the stock short. Any loss will be increased by the amount of compensation,
interest or dividends, and transaction costs the fund must pay to the lender of the borrowed security. In addition, because the
loss on a short sale stems from increases in the value of the stock sold short, the extent of such loss, like the price of the stock sold
short, is theoretically unlimited. By contrast, a
loss on a long position arises from decreases in the value of the stock and
therefore is limited by the fact that a
value cannot drop below zero. In addition, the fund may not be able to close out a short
position at a particular time or price advantageous to the fund and there is some risk the lender of the stock sold short will terminate
the loan at an inopportune time.
Under normal circumstances the
security selection process may result in the managers taking long positions in a market sector
or industry that is not offset, or not offset to the same extent, by corresponding short positions in the same market sector or industry,
and vice versa. This may result in increased risk and opportunity for loss should the securities in a particular market sector or industry
not perform as predicted by our security selection process. The
portfolio turnover may be very high which could result in
relatively high transaction costs which could hurt the
performance and cause capital gains tax liabilities.
Source: Bloomberg Index Services Ltd.Bloomberg Barclays U.S. 1-3 Month Treasury Bill Index is the 1- to 3-month component of the
U.S. Treasury Bill Index, which includes U.S. Treasury bills with a remaining maturity from 1 up to 12 months and excludes zero coupon
strips.
American Century Investment Services, Inc., Distributor
©2017 American Century Proprietary Holdings, Inc. All rights reserved.
IN-FLY-92051
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